If you are demoted for cause (disciplinary reasons), it can have a big impact on both your paycheck now and your retirement later. Now, I am not talking about a demotion due to a restructuring of your unit, agency or station, but you were naughty and were caught.
Restructure occurs. The federal structure is a dynamic leviathan. We humans can get caught up in machinery, chewed up and find ourselves in aplace doing duties we never thought about. This happens. If so, the H-3 you have established is secure. In this article, we are speaking about a bad deed, something you did that warrants demotion.
Before a federal employee is demoted for acts, the procedure is a disciplinary hearing for demotion or termination is an “adverse action” that provides due process rights and the opportunity to appeal the decision. Most federal employees can appeal such actions to the Merit Systems Protection Board (MSPB), a quasi-judicial agency that hears and decides these cases. High crimes or serious matters can result in arrest or termination. If the offense was not a crime, a settlement of continued employment may be offered, however, at a demoted position or pay grade.
Here’s what you need to know:
1. Pay After a Demotion
- You do not get pay retention.
- Your new salary is set at a step in the lower grade.
- If your old pay is higher than the top step in the new grade, your pay will be capped at the maximum for that grade.
- This usually means a noticeable pay cut.
2. Grade Retention
- Grade retention only applies if you are downgraded because of things like a reorganization or a reduction-in-force (RIF).
- It does not apply if the demotion is for cause.
- You lose the grade and move fully into the lower grade.
3. Retirement Impact – “High-3” Salary
- Your pension is based on your highest average basic pay for any three years in a row (“high-3”).
- If your demotion happens during what would have been your highest earning period, your “high-3” will be lowered.
- That means your retirement check will likely be smaller.
- You don’t “start over” with a new high-3—it’s automatically based on your actual pay history.
4. Your Right to Appeal
- A demotion is considered an adverse action under federal law.
- Most employees can appeal to the Merit Systems Protection Board (MSPB).
- The agency has to prove the demotion was justified and served the efficiency of the service.
- You have only 30 days from the effective date of the demotion to file an appeal.
- Talking with a lawyer who specializes in federal employment law can help you understand your options.
In short: A demotion for cause can cut your pay now and reduce your retirement later. You can appeal, but the timeline is strict, don’t wait if you plan to challenge it.
So, now, the question becomes, what constitutes ‘For Cause?”
A federal employee demotion “for cause” means the employee is being reduced in grade and/or pay due to misconduct or unacceptable performance rather than because of agency restructuring or downsizing.
Here are the key points:
What “for cause” means
- It is a disciplinary or adverse action taken under 5 U.S.C. Chapter 75 (for misconduct) or Chapter 43 (for performance).
- Common causes include misconduct, insubordination, attendance issues, or failure to meet performance standards.
- It is not voluntary and not due to lack of available positions.
Rights and procedures
- The agency must give the employee advance written notice (usually 30 days).
- The employee has the right to review evidence, provide a written or oral reply, and be represented by a union or attorney.
- Final decision must be in writing with specific reasons.
- The employee generally has the right to appeal to the Merit Systems Protection Board (MSPB).
Pay and retirement effects
- No pay or grade retention applies. The new lower grade and salary take effect immediately.
- This may lower the employee’s “high-3” average salary, which directly reduces their retirement annuity under FERS or CSRS.
- Future step increases, promotions, or retirement estimates are based on the new grade and pay.
Career impacts
- The record will show the demotion was for cause, which can limit future promotions or transfers.
- It can remain a permanent part of the personnel file unless overturned on appeal.
When is a demotion not cause for restructure of your H-3:
A demotion, whether by request or a re-structuring, may not be cause to establish a new H-3? Although they may carry a lower salary, voluntary demotion is common when an employee, high on the food chain, decides to take an easy job, out in the pasture, for a couple years prior to retirement. Common at USPS, an employee at a major city distribution center, 400 employees and breakneck schedules. Takes a voluntary demotion to Trout City Wyoming. Downsizes to a cabin, goes fishing every afternoon at 2:00PM, all in anticipation of retirement.
The operative word here is Involuntary Demotion, many times, a settlement to a full termination. For cause, can and likely will reduce your H-3.
